February 2013

While the new Congress in many respects is still just getting underway, it has been a busy month in Washington when it comes to developments which could result in long term impacts on background screeners, even though screeners were not the primary focus of many of the developments.

At the FTC

First, since our report last month, Federal Trade Commission (FTC) Chairman Jon Leibowitz made it official and announced his resignation from the FTC effective February 15th, although he later agreed to stay on a few days beyond the 15th to give the White House additional time to name his replacement. With the departure of Chairman Leibowitz, as we discussed in last month's report, the longest-serving Commissioners (Ramierez and Brill) have been in office for just under three years and three of the five Commissioners will have served on the Commission for a year or less (Ohlhausen, Wright, and the successor to the Leibowitz seat, yet to be nominated when this report was written).

On February 11th, the FTC released its most recent report to Congress-required by the Fair and Accurate Credit Transactions Act of 2003-regarding the accuracy of consumer credit reports. Headlines generated by the report emphasized a finding that one in five credit reports may contain an error, without noting another finding in the study underlying the report that only 2.2% of the credit reports contained an error sufficient to change the consumer's credit score risk tier. The night before the public release of the FTC Report, CBS aired a "60 Minutes" story-titled "40 million mistakes"--referencing the FTC Report and highly critical of the reinvestigation practices of the three national credit reporting systems. While the focus of the FTC Report and the ensuing media attention is the three national credit reporting systems, the report and the ensuing media coverage potentially has important implications for all consumer reporting agencies, including background screeners, because any changes in law or regulation regarding accuracy or reinvestigation requirements could impact all consumer reporting agencies, not just the three national credit reporting systems (the Consumer Financial Protection Bureau (CFPB), after all, has broad FCRA rulemaking authority). The National Employment Law Project and other organizations already were urging the CFPB last year to define "reasonable procedures to ensure maximum possible accuracy", the core FCRA Section 607(b) accuracy requirement, in a way that would address their concerns about the accuracy of background screening reports.

At the CFPB

The President also has re-nominated Richard Cordray to serve as Director of the CFPB. Republican Senators again quickly announced their opposition to the nomination and their intention to block Mr. Cordray's confirmation until structural reforms are made to the CFPB, including changing the agency leadership from a single Director to a multi-member Commission and funding the CFPB through the traditional appropriations process rather than through the Federal Reserve.

Mr. Cordray serves as CFPB Director today due to a presidential recess appointment he received in January 2012, the legality of which is being challenged in court. That legal challenge appeared to get a significant boost in a recent ruling by the U.S. Court of Appeals for the D.C. Circuit, which held that the President exceeded his constitutional authority in a case involving two recess appointments he made to the National Labor Relations Board (NLRB) on the same day that the President gave Mr. Cordray his recess appointment to serve as Director of the CFPB. The NLRB case is being appealed to the Supreme Court and the challenge to Mr. Cordray's appointment remains pending in a separate case. If the Supreme Court were to strike down the recess appointments as exceeding the President's authority, it remains to be seen which CFPB actions taken while Mr. Cordray was at the helm might be invalidated. The outcome likely is many months away and, in the meantime, Director Cordray and the CFPB are moving full-speed ahead on a wide range of initiatives.


On February 8th, the Department of Housing and Urban Development (HUD) issued a Final Rule implementing the Fair Housing Act's "discriminatory effects" standard and raised the possibility of future guidance regarding the use of arrest and conviction information for tenant screening purposes. Similar to the disparate impact doctrine supported by the Equal Employment Opportunity Commission (EEOC), HUD long has interpreted the Fair Housing Act to prohibit practices with an "unjustified discriminatory effect" without regard to whether there was any intent to discriminate. The Final Rule announced on February 8th is an effort to standardize the application of the test nationwide, given variations in applicable case law.

Buried in the materials accompanying the Final Rule is something that tenant screeners will want to monitor closely going forward. Two commenters on HUD's proposed rule raised questions about the impact of the use of arrest and conviction information for tenant screening purposes. In response to these comments HUD stated: "Whether any discriminatory effect resulting from a housing provider's or operator's use of criminal arrest or conviction records to exclude persons from housing is supported by a legally sufficient justification depends upon the facts of the situation. HUD believes it may be appropriate to explore the issue more fully and will consider issuing guidance for housing providers and operators." 78 Fed. Reg. 11460, 11478. The comments asking HUD for guidance referenced the EEOC guidance regarding the use of criminal history information for employment screening purposes, so if HUD does proceed with guidance, the EEOC guidance may serve at least as a starting point for HUD's efforts and prompt a reevaluation of the way arrest and conviction information is used in the tenant screening space.

Disclaimer: The Washington Report provides a general summary of recent legal and legislative developments and is for informational purposes only. It is not intended to be, and should not be relied upon as legal advice. For more information, please contact Kevin Coy at 202-677-4034.